Profit up 7.2% at local bank Mercantile credits success to investing wisely in region

Banking

October 15, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

Mercantile Bankshares Corp. churned out a solid third quarter RTC with net income rising 7.2 percent led by gains in its trust business, the company said yesterday.

Mercantile, Maryland's largest independently owned banking company, made $37.3 million in the quarter that ended Sept. 30, compared with $34.8 million for the same period a year ago. Earnings of 52 cents per share in the quarter met analysts' expectations, and were up 8.3 percent from the corresponding period a year earlier.

"The numbers in the quarter were good numbers," said Gerard S. Cassidy, a bank analyst at Tucker Anthony, a Boston brokerage firm. "They weren't blow-your-doors-off numbers, they were just basic, solid numbers."

Shares of the Baltimore banking company gained 87.5 cents to close at $28.50 yesterday on the Nasdaq stock market.

For the first nine months of the year, Mercantile's net income was up 10.1 percent to $109.3 million, compared with $99.3 million for the same period a year earlier. Earnings per share rose 9.4 percent to $1.52 for the nine-month period, compared with $1.39 a year earlier.

"We are on schedule," said H. Furlong Baldwin, Mercantile's chairman and chief executive, who was pleased with the results.

While a number of the money center banks in New York and California have been hit with losses because of loans to risky investment vehicles known as hedge funds, and from lending to overseas companies, Mercantile has stuck to its knitting by making loans in its own back yard: Maryland, Virginia and Pennsylvania.

"The good news is we are not in the foreign lending business, nor are we in the bond trading business domestically or foreign -- all of the things that have investors properly worried," Baldwin said.

Mercantile's return on average assets -- a ratio that gauges how profitably assets are used -- was 2.03 percent for the nine months, which means the bank returned more than $2 for every $100 in assets. The average return for the industry is about 1.26 percent.

The company is also flush with capital totaling $997.2 million, and it keeps tight control of costs. Mercantile's efficiency ratio, which measures the amount of money needed to generate $1 in revenue, was 46.7 percent. That means it costs Mercantile 46.7 cents to generate $1 in revenue. Most banks of similar size are typically in the upper-50s range.

"Maybe six banks in the country come in with numbers like this," Cassidy said. "Mercantile is the Rock of Gibraltar in terms of quality. In difficult times, this is the bank you want to go with. This is a meat and potatoes bank."

Mercantile's assets at the end of the quarter were up 4.8 percent, to $7.4 billion, for the nine months; loans rose less than 1 percent to $4.9 billion and deposits rose 2.2 percent to $5.8 billion.

Net income for the nine-month period was boosted by $43.4 million taken in by the trust division, a 13.4 percent increase from a year earlier. Service charges on deposit accounts rose 3.7 percent to nearly $13 million, and income from fees on loans rose 3.6 percent to $333.6 million.